Analysis: Proposed New Budget and What It Means For Measure O

Davis-Mailer-2014b-1The first thing that stands out in the new budget is that the all-funds budget has declined to just under $200 million, which is amusing in light of the claims from Jose Granda that cited the $248 million all-funds figure as though it were some indication of budget flexibility that does not exist.

As the city press release notes, “The City’s overall budget is $196,146,382, which decreased by approximately $88 million from FY 13-14, mainly due to the removal of capital funds for the wastewater project.”

That point, and the random nature of the original figures, demonstrates that we need to be focused on what is now a $48 million general fund.

As the city press release indicates, the budget “is balanced by using $4.2 million from reserves. Although the Proposed Budget already incorporates $1.2 million in reductions, the current structural deficit needs to be addressed and highlights the gap between revenues and expenditures.”

The need to close that gap is addressed by the council’s placement of “an additional ½ cent sales tax measure (Measure O) on the ballot which will raise $2.7 million in FY 2014-2015 and $3.6 million annually, thereafter.”

The release continues, “Without new revenue, the City has to draw down on its reserve and/or make reductions; this is not sustainable. In the event Measure O does not pass, major program areas, such as community services, transportation, public safety, planning and building and administrative services, will have to make additional reductions upwards of $4 million to programs and staffing.”

Finally, “The City is working on long-term solutions to the General Fund deficit, which include advancing economic development endeavors compatible with community values and continued review of operational efficiencies.”

Measure O comes down, therefore, to a basic question: do you think the budget should be balanced through additional cuts to services and programs or through a six-year marginal increase in the sales tax?

There are several arguments against Measure O that fall flat. First, a half-cent sales tax is almost unnoticeable. If you spend $100 on your purchase, you are paying 50 cents more than you would have. If you spend $1000, you are paying $5 more. Even at $100,000 you would be paying only $500 more.

It will not put Davis at a huge disadvantage in the region. Other areas have relatively similar tax rates: Woodland is 8.25%, Sacramento is 8.5%, West Sacramento is 8.0%, Vacaville is 7.875% and Fairfield is 8.625%.

Again, what does the 0.5% between West Sacramento and Davis amount to? 50 cents for $100, $5 for $1000, $50 for $10,000. In other words, you pay more in gas and wear on your car to shop in other cities based on the actual price difference. And, by the way, if you buy a car, you pay Davis’ tax rate regardless of where you purchase it.

To me, this simply comes down again to a trust issue. Has the city since 2010 done enough to earn back your trust? Maybe they haven’t. The city did mismanage its budget from 1998 until 2008 by adding huge unfunded liabilities and balancing its budget through deferring infrastructure maintenance.

From 2008 until 2011, the council attempted to deal with the economic crisis by cuts through attrition, marginal structural changes, and more deferred maintenance.

On the other hand, this election marks the first time after six years of cuts that the city is asking for new and increased taxes.

Unlike the schools, which hit up the taxpayers five times for either renewals or increased taxes, this marks the first such endeavor for the city. The city has in that time eliminated 110 positions – most by attrition, representing 24% of the current workforce.

The city in its transmittal argues, “Its effects may not always be evident to the public, but it is fair to say the City’s service levels have been affected and the city’s ability to fund capital expenses has also been diminished.”

The city argues its structural deficit is about $5 million. As we have shown, that number is on paper only. It includes some infrastructure needs, but not all. We believe the city needs to spend $5 to $8 million on roads – the $5 million figure assumes only about $2.5 million, of which only $1 million is covered by Measure O. That figure doesn’t include parks or building infrastructure needs, which could be sizable.

A December 17, 2013 staff report revealed that “if the City continued its existing service levels with no significant new source of revenue, its general fund reserves would be completely extinguished by the end of the FY 14/15 budget year,” Yvonne Quiring wrote in the City Manager Transmittal to the budget. “Allowing the reserve to be extinguished is unthinkable as it would negatively impact the City’s credit rating; it would provide no margin for dealing with contingencies and emergencies; and it would result in more major reductions in FY15/16 and beyond.”

The bottom line is that if Measure O passes, the city will still have to cut about $1.2 million from the budget. As Ms. Quiring notes, the $1.2 million in general fund reductions are already built into the budget, they “were recommended by staff, endorsed by the Council and included in the FY 14-15 Proposed Budget.”

The city is looking into longer term economic development strategies designed to generate additional revenue. As we know, there are potential business park proposals east of Mace and west of Sutter-Davis. We also evaluated Nishi, which could generate 1600 to 1700 new jobs. And there is the potential half million in revenue at the proposed Hotel-Conference center.

As Ms. Quiring writes, “If Measure O fails to pass, the impact of not having the new sales tax revenue available will require significant expense reductions beyond those already identified within the proposed Budget [which] will need to be considered immediately.”

Staff has laid out a 12.5% cut across the board scenario, and what I believe to be more likely, a 25% cut to non-safety departments.

We have already seen a pool closed; will we also see parks and greenbelts closed? What will the city look like?

The citizens of Davis will get to choose these options on Tuesday. Unfortunately, what was asked for will not address most of the roads costs, parks, and building infrastructure. We may or may not see another tax measure in November – a parcel tax – that attempts to address that.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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31 Comments

  1. Barack Palin

    “Unfortunately, what was asked for will not address most of the roads costs, parks, and building infrastructure. We may or may not see another tax measure in November – parcel tax – that attempts to address that.”

    LOL, there’s no “may not” to it!

      1. Mark West

        There has to be a parcel tax, and if the City had been smart we would already know how large that tax will need to be as part of a comprehensive solution to meet our needs. Unfortunately, we continue to talk about a piecemeal approach that ignores our infrastructure needs and uses budget tricks and marketing mumbo jumbo to make it look like we are accomplishing something when we are not.

        A fully transparent accounting of our total needs, increased taxes, reduced expenses through outsourcing services (not cutting them) and aggressive economic development is what is called for, and not a stand alone tax increase that only pays for the increase in total compensation and none of our long term needs.

  2. Frankly

    Again, what does the 0.5% between West Sacramento and Davis amount to? 50 cents for $100, $5 for $1000, $50 for $10,000. In other words, you pay more in gas and wear on your car to shop in other cities based on the actual price difference.

    I agree, it is a stupid argument to say that a $.005 tax is going to cause a Davis shopper to go elsewhere. But that isn’t the argument. In fact, you can make a similar argument for every incremental tax increase passed by Democrats. It is that the single instance that causes so much economic harm, it is the accumulative effect. It manifests in a low-income family eventually having to cut back that one pizza dinner or movie every month that they used to be able to afford. It is that car or piece of furniture that is just out of reach… not enough money in the checking account for some reason even after saving and scrimping to be able to afford it. It is that credit card bill that keeps increasing because not enough discretionary income is coming in after all the taxes are paid.

    And it is the accumulative effect on business and those jobs that would otherwise be created and retained.

    Think of taxation as a toxin to economic growth and economic well-being. But some taxation is necessary… obviously. We do require infrastructure and services and we have to pay for them. The simple problem is that we are paying a very high premium for government labor. It is unnecessary that we pay this premium at any time… but especially at a time when REAL unemployment is higher than ever. And we are told of all the legal and other reasons why that cannot be fixed. Democrats are responsible for this… they have made mistake after mistake managing the city treasure. And they also have made mistake after mistake doing the same at the state level… and let’s not forget how those mistakes at the state level have impacted the city.

    The solution is to scale back the cost of city labor, not to add another, and another, and another incremental tax increase to keep covering the result of all those accumulative mistakes by Democrats while making the case that the financial impact to taxpayers for each one of these is too small to worry about.

    Democrats have allowed the unions to build in all sorts of protections for their gross over-compensation. More mistakes made. So now the job of scaling back that gross over-compensation is even more difficult.

    Too bad, so sad.

    We need to stop allowing these politicians to bypass the difficult parts of the job they have been elected to do. We need to stop allowing ourselves to be taxed more and more and more and more. Fix the damn problem of grossly over-compensation city labor and then if we need more revenue, develop the damn local economy so we at least compare with other comparable cities for business-related tax revenue. Then after these things are done, if we are still short, then by all means come ask us to approve a tax increase.

    1. David Greenwald

      While I appreciate your comment about the difficult parts of the job, I wonder how you view a strategy of cuts, protracted labor negotiations, a ballot initiative for a tax increase (or two), and a ballot initiative for a business park (or three) is easy. Seems like a heavy lift.

      1. Mark West

        They have talked about a lot of those issues David, but so far all they have done is the easy request for more taxes. You will have a point when they actually start doing some lifting.

          1. Mark West

            Sure, lots of ceremonial and feel good items, but beyond making the MOUs slightly less unsustainable than before, what have they really accomplished in terms of addressing our fiscal needs.

            In the past four years what have they accomplished in the form of economic development? Addressing our infrastructure needs? A thorough accounting of our fiscal situation? Little or nothing.

            This CC certainly loves to talk, but action and leadership have been in short supply these past four years.

          2. Don Shor

            I know that no ground has been broken, but the hotel/convention center and Nishi are moving forward. Requests for proposals have been put out. Rob White has detailed some of what the staff has been doing. Fast enough? I don’t know how they can move that kind of thing any faster.

          3. Davis Progressive

            i don’t know how reducing about $11 million in future costs amounts to slightly less unsustainable.

      2. Frankly

        I think this CC is doing just enough to enable them to make this argument.

        The CM does some good stuff, but then is run out of town on a rail by 2-3 CC members.

        Tax increases are a bailout, not a solution of fiscal prudence nor an indication of strong leadership.

    2. Don Shor

      Democrats are responsible for this… they have made mistake after mistake managing the city treasure.

      I don’t disagree with all of your assessment, but — just for the record — I don’t think all of our city council members have been Democrats.

      1. Frankly

        I don’t disagree with all of your assessment, but — just for the record — I don’t think all of our city council members have been Democrats

        Mostly Democrats. Or independents. I doubt there has been a Republican on the City Council for decades if ever.

        But your point is well taken. It has been Democrats primarily that have been in so tight with the public employee labor unions and groups that have provided their base of campaign contributions. And today it is Democrats primarily that seem to be unable to break their emotional tie with these labor unions and groups… more apt to go after tax increases than telling their friends “listen, you have had a good run… now it is over and we have to scale back some of your wins because they have proven to be significantly unsustainable.”

        “Can’t do it” they say… because the law prevents us touching these “committed” pay and benefit levels.

        So then, how do we fix the problem? We declare a fiscal emergency or we move further to bankruptcy.

        1. Don Shor

          The biggest change in the council in the last few years has been the election of folks like Brett and Rochelle who weren’t directly associated with two particular factions in Davis. We had candidates from the mainstream Democratic party, aligned with Don Saylor and Stephen Souza and others, and we had candidates aligned with the no-growth factions that are mostly associated with Sue Greenwald. But finally we broke from that pattern with much more independent candidates who had broad appeal: Krovoza, Swanson, Lee. I’m pretty sure Rochelle is or was a registered Republican (I know Stan Forbes was). The close link to the public employee unions applied to a particular faction of local political figures. And IMO Sheila Allen comes from that same faction. She may not think so, but the unions certainly do.

          1. Frankly

            Makes sense. But it takes a majority to get anything substantive done. A few token fiscal conservatives every now and then do not detract from the point that the CC has been and is Dem-dominated and labor-group friendly.

          2. Don Shor

            Well, Sue Greenwald was definitely a fiscal conservative and was on the losing end of a lot of votes. I don’t know her party registration, but I seriously doubt it’s GOP. Her ‘faction’ (I’m hesitant to use that term, since it’s a loose coalition, but it’s a convenient term) is behind John Munn this time.
            I could see a majority of Brett Lee, Rochelle Swanson, and Robb Davis making some progress on fiscal issues.

          3. Barack Palin

            Democrats have run this city into the ground. To try and point a finger at the GOP or any conservatives is totally disengenuous.

  3. Barack Palin

    Great points Frankly. I’m sure David said it was only a small tax or just two lattes a month on every tax proposed by the city or the school district. Guess what, now they’re all adding up and it’s time to now say “NO”.

      1. Frankly

        Where were you when Mace 391 was a city-owned asset worth at least $50 million over a 10 years period assuming we developed it into an innovation park?

        1. Jim Frame

          I, for one, was right here telling you that your assumption is a fantasy. Mace 391 didn’t stand a chance of getting developed — it never would have passed a Measure R vote. I would have joined a majority in returning a no vote on the measure. Thus there never was $50 million sitting around in Mace 391 just waiting to solve all our fiscal problems, except in your head.

          1. Frankly

            Then why do you think any peripheral business park will pass a measure R vote? Especially for the developer-owned and driven projects versus one that would have been city-owned and city-driven?

            I think you and David and others have latched on to this “Macy 391 would never have passed a Measure R” vote as a lazy and disingenuous cover for your knowledge that you were on the wrong side of policy related to our city’s fiscal problems.

            If the CC had not punted for political reasons, and gave time and effort to communicate the TRUE cost-benefit for leveraging that asset to bring in the much needed revenue to the city, I think there is a very strong chance that 50%+1 would have voted to approve it.

            This would have been an innovation park. The same that we are building toward another Measure R vote for two smaller parcels. It was only a few political elites and the VG posters that had their tail feathers all ruffled because of the Dave Morris effort. Nobody else in Davis knows or gives a rat’s ass.

          2. Davis Progressive

            give me a break frankly. you had a group of open space people, city staff, and the yolo land trust against the project. that’s a bad start as these things go. not necessarily fatal. but given that you have to have all the stars line up to pass a measure j, that would have been a problem.

            you seem to have gotten so emotionally wrapped up in this that you’re not thinking logically. getting mace 200 and the nw quadrant to pass provides about the same space and are much easier lifts unless the parlin people continue to insist on housing.

        2. David Greenwald

          I think you know where I was, and I’ll tell you once again, there is no way Mace 391 would have passed a Measure J vote after the way it came forward.

  4. Tia Will

    Frankly

    “It manifests in a low-income family eventually having to cut back that one pizza dinner or movie every month that they used to be able to afford. It is that car or piece of furniture that is just out of reach… not enough money in the checking account for some reason even after saving and scrimping to be able to afford it. It is that credit card bill that keeps increasing because not enough discretionary income is coming in after all the taxes are paid.”

    We seem to be in agreement that too little discretionary income can cause the low income family to cut back on elective purchases. You favor increasing their disposable income by limiting taxes. I favor increasing their disposable income by providing them with sufficient income. Perhaps two sides of the same coin ?

    1. Frankly

      I want to provide copious opportunities for them to provide their own income… including not taking so much of it back out their pockets to fund the obscene pay and benefits of public sector union members.

  5. Tia Will

    Frankly

    “Think of taxation as a toxin to economic growth and economic well-being”

    But I don’t. I think of taxation as a means to pay for items ( such as infrastructure as you have cited) that we either physically need, or have decided we want. As for what constitutes adequate compensation for work done, I simply do not agree that it should be based on what the “free market ” will provide since obviously, it does not provide enough for very full time worker to live on. When we, as a society, meet this standard of compensation whether through public sector, or private sector, then we can discuss which should be the bench mark for what public employees should be paid. But not until then.

    1. David Greenwald

      First of all, there are the roads that need to be addressed.

      Second, this is not the end of structural deficits, all of these strong proponents of the water project need to understand that by 2018, there is an additional $3 million in general fund water costs coming onto the books and one of the ways that the city might have dealt with it, the POU, was killed off.

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